As a Franchisor, can I force Franchisees to buy products from me, or from a particular third party supplier?
Answered by Robert Toth from Wisewould Mahony - Franchise Lawyers
Section 47 of the Trade Practices Act 1974 prohibits corporations from engaging in the practice of exclusive dealing, although usually only where this has the purpose or effect of substantially lessening competition.
Generally, this will not prevent a Franchisor from forcing Franchisees from purchasing goods from them, as long as the same goods are not available from any alternative source (such as the where the Franchisor produces the goods).
If goods are to be bought from a third party, the Franchisor will not be prevented from imposing quality standards for goods and nominating preferred suppliers who meet those standards. However, a Franchisor who tries to prevent a franchisee from acquiring goods from an alternative supplier who meets the Franchisor's quality standards may be in breach of the Act.
You should seek further legal advice before seeking to force Franchisees to source goods from particular suppliers.
Generally, this will not prevent a Franchisor from forcing Franchisees from purchasing goods from them, as long as the same goods are not available from any alternative source (such as the where the Franchisor produces the goods).
If goods are to be bought from a third party, the Franchisor will not be prevented from imposing quality standards for goods and nominating preferred suppliers who meet those standards. However, a Franchisor who tries to prevent a franchisee from acquiring goods from an alternative supplier who meets the Franchisor's quality standards may be in breach of the Act.
You should seek further legal advice before seeking to force Franchisees to source goods from particular suppliers.
About Robert Toth
Robert Toth is the Franchise Partner at Wisewould Mahony - Franchise Lawyers. Robert Toth is an Accredited Business Law Specialist, a member of the International Franchise Lawyers Association (IFLA), a member of the Australian Institute of Company Directors.
You should always check independently that an ask an expert answer published on Franchise Business applies to your particular circumstances.
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